UPDATE 2-UAL/CAL say long-haul travel drives merger bid

* New York access key for big-volume business contracts

* Senate panel sees duty to protect consumers, competition

* UAL/CAL CEOs say will integrate workforce fairly (Rewrites with airline CEO testimony; adds GAO report, former Justice Department attorney comment)

By John Crawley

WASHINGTON, May 27 (Reuters) - Creating a network that can compete for long-haul, high-volume business travel is a driving force behind the proposed merger of United Airlines and Continental Airlines, the companies' top executives said on Thursday.

Glenn Tilton of United, a unit of UAL Corp UAUA.O, and Jeff Smisek of Continental CAL.N told a Senate antitrust subcommittee hearing that the intent to create the world's largest airline would not harm competition or consumers in what they called a hyper-competitive environment.

"The changing dynamics of the airline industry have resulted in robust competition that maintains significant downward pressure on fares," Tilton and Smisek said in joint testimony.

The executives pointed to the potency of Southwest Airlines (LUV.N), the largest domestic carrier by domestic passenger volume, and rivals with strong international ties, as evidence the industry can absorb consolidation.

"Our combined company will be well positioned to succeed in an increasingly competitive global and domestic aviation industry - better positioned than either airline standing alone," the two said.

United and Continental had combined operating revenue of $28.7 billion in 2009, compared with $28.9 billion for Delta Air Lines (DAL.N), which merged with Northwest Airlines in 2008, a Government Accountability Office report on the deal showed on Thursday.

Senators did not object to the United-Continental merger, but some were concerned about the impact it would have on jobs, especially in Houston, where Continental is now based, and Cleveland, where Continental operates a hub.

The new airline will be called United and will be headquartered in Chicago, where the current United is based.

Smisek said there would be some job loss as the two companies integrate their operations, but there are no plans for large cuts to the combined workforce of nearly 90,000 employees.

Smisek, who will run the merged company and shook hands with United pilots as he entered the hearing room, expects job growth as the airline matures.

The antitrust subcommittee's chairman, Herb Kohl, did not take a position on the deal and other lawmakers did not speak out against it.

"I should stress that we consider this merger with an open mind, and do not reflexively oppose or support this merger," Kohl said.

But Kohl said Congress must ensure that competition and consumer interests are preserved.

Antitrust officials at the Justice Department are reviewing the proposal. United and Continental hope for regulatory clearance by year's end.

Antitrust lawyers, analysts and consultants expect the deal to pass regulatory muster over the next several months. They say United and Continental may have to give up some assets at big airports, including New York, to ensure competition.

Tilton said greater access to New York, a rich environment for travel by financial services firms and a jumping off point for overseas travel, was an important factor for pursuing the tie-up with Continental, which has a strong hub at Newark, New Jersey.

"This merger will put us in a position to create a network far more attractive to corporate travelers," Smisek said.

Darren Bush, a former Justice Department antitrust attorney and currently an associate professor at the University of Houston Law Center, told the committee that the sheer size of the combined airline "may make it difficult for smaller carriers to compete" for high-volume corporate contracts. (Reporting by John Crawley, editing by Gerald E. McCormick and Tim Dobbyn)